A situation that arises when all depositors or a majority of depositors demand their money at the same time, or within a short period, forcing the bank to meet withdrawal requests by liquidating its assets at a very short notice. This may, in turn, result in a bank’s failure. Bank runs usually occur amidst a wave of panic grabbing customers who rush to withdraw their money immediately. Even a profitable and solvent bank may experience a bank run problem, which at times may be overwhelming and exhaust the bank’s resources if not managed properly and timely.
Bank runs may be caused by liquidity runs, worsened borrower and creditor relationships, early liquidation of loans by lenders triggered by uncertainty engulfing soundness of borrowers (doubts in a lender can raise doubts in other lenders, prompting lenders to exit the market prematurely, etc.)
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